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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Marq Spencer who wrote (11083)	6/18/1998 6:05:00 PM
From: Austin	Respond to of 14631

Regarding: "Neither of us sees anything in this stock that will make it explode on the upside (otherwise we wouldn't be looking to write covered calls)." Don't count out a positive earnings surprise this quarter. The consensus estimates I have seen are around .02 and I think this may be low.

To: Marq Spencer who wrote (11083)	6/18/1998 7:03:00 PM
From: Robert Graham	Respond to of 14631

This may be a good play. Usually writing current month CALLs allow for the best erosion of time premium. But with this stock unless volatility is unusually high the time premium is virtually non-existant. The speculative public that wants to make a play usually purchases cheap out-of-the-money options. So I am not surprised the volatility is reflected in the 7.5 CALLs which are currently just out-of-the-money. There appears to be a 1/2 point premium on JULY 7.5 and 15/16 on AUG 7.5 CALLs. The OE is 10363 and 4756 respectively, both which is an order of magnitude higher than their 5.0 strike price counterpart. The drawback to writing AUG CALLs is both the time to the contract, which may or may not be a benefit, and the time value erosion occurs much more quickly with the JULY CALLs. As it stands, I do agree that 8 would be an upper limit for the next couple months which would place the option in-the-money by 1/2. So the AUG calls would afford a better buffer. However, watch out for the earnings report date on this stock which can over a short period of time pop the stock temporarily above 8. But the OI for this option should be significant enough to render an exersize on your option only a small possibility unless the earnings report date occurs during option expiration week and you waited to cover until this time period. It is best if the earnings report would come out after the expiration date of your option. Your approach trades some of the potential through volatility of the price of the underlying stock with that of the erosion of time premium. This is because my option is deeper in the money, will trader for closer to a 1:1 following of the price of the stock, and has the additional advantage of profiting from a wider down swing that can be made by the stock. But your approach is much more manageable for the person who has a full time job and other interests, while my approach requires me to stay on top of the price swings in this stock. So even though I may net out a larger profit I would need the volatility to remain and be very good at timing my writes and covers. All considered, I do think your approach is the less risky approach that requires less maintenance of the position. Still, I think this basically comes down to one question. If you think the price of the stock has a good chance to revisit 6 within the next two months, then the writing of the CALL options at the 5 strike price would be a better approach. In this case, the JULY 5 CALL would be the better choice where profit or a more complete hedge is the focus. I would check the date of the next earnings announcement. Comments welcome. Bob Graham

To: Marq Spencer who wrote (11083)	6/19/1998 11:16:00 AM
From: Robert Graham	Read Replies (1) \| Respond to of 14631

I was thinking of writing my first batch of CALLs today, but IFMX is seeing buying activity above 7 1/2 right now and I am beginning to see larger block purchases coming into the picture. Also it is triple options expiration, so I will probably wait until Monday to make my decision. My technicals tell me that the stock will stay the same or go up from here. Perhaps 8 is possible for next week. Monday's trading on this stock apart from the artifical effects introduced during options expiration will be revealing. Still, I do not see a significant amount of CALL options at 7.5 to have a large impacton the price of this stock. But as long as the price of the stock continues up, the options holder will likely wait to sell it to the MM. So later today when the trading activity tapers off, the hedging effect of the remaining options traded to the MM may have its effect before the close of the market day. In this case, this will tend to generate selling pressure on the stock toward 7.5 which is the strike price of the option. Watching the options stats today may be helpful in this regard for those who want to closely follow this stock today. Bob Graham